How to Make Category Management Do Supply Chain Risk Management

Category management is about segmenting supply markets to optimally formulate sourcing and supplier management processes to drive savings and other financial rewards. But what about managing the other side of reward — risk? Well, category management can do that too, and to illustrate this, consider the Kraljic Matrix, circa 1983, which plots supply categories against two dimensions: supply impact and supply complexity.

Now, what if you think of complexity as a proxy for supply chain risk and look beyond the Krajlic’s Porteresque market power view of this. In other words, the more “moving parts” in the supply chain (and the higher the velocity, volatility and variability), the higher the likelihood of an adverse risk event. Suddenly, you can can plot categories (or within a category) by risk type so that you have a complete picture of a category.

In fact, you can map risk types to the individual KPIs you use to source a category, subcategory or supplier to help you further prioritize the importance of those risks. Each category will have its own risk profile, but a generic cross-category risk profile is shown above. What is also shown are three key concepts:

Resiliency is the ability to lessen the impact of an adverse risk event so you can recover faster and more efficiently

Prevention is the ability to lower the probability of the risk event through complexity and risk elimination or through early warning

Agility combines these two so that you move responsively and quickly to avoid the risks and mitigate their effects

Supply chain risk management is therefore about the organizational, process and technology activities that improve these three critical capabilities to improve your odds in delivering value in your categories and across your categories in the multitier, end-to-end supply chain.